Editorial: State eyes tough sledding to balance 2015 budget

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Posted on December 2, 2013 |

While we’ve discussing all things local in this column in recent weeks, there have been several substantial developments outside our immediate sphere that warrant inspection: the recommendation to increase the state education property tax base rate by 5 cents and Vermont House Speaker Shap Smith’s call to make ends meet this session by cutting spending and not increasing taxes.

The first two are intertwined and will have a substantial local impact in fiscal year 2015.

Last Tuesday, Tax Commissioner Mary Peterson issued her annual property tax recommendation for the 2015 fiscal year. She noted the impending budget shortcoming and proposed the 5-cent hike on the base homestead property tax from 94 cents to 99 cents, and increase the non-residential property tax rates from $1.44 to $1.49. She recommended no change to the 1.8 percent rate on the homestead income tax.

The Legislature, which sets the statewide tax rates, will consider Peterson’s recommendations in the upcoming session, but will do so with another of Peterson’s recommendations and Gov. Peter Shumlin’s endorsement: that lawmakers and school boards continue working to find a way to limit the annual growth in school spending. Shumlin has called for a symposium on school spending this coming January to study the education funding system and to address one of the weaknesses he sees in the current formula: that lower income households don’t face enough of an increase in their tax bills when school spending continues to grow at above inflationary levels. That’s because residents with household incomes below $90,000 annually pay an education tax based on their incomes (or ability to pay) rather than on the assessed value of the property. Because that affects a significant number of households in Vermont, the growing burden of education is falling on a smaller number of more affluent Vermonters.

Neither the governor nor the Democratic-leaning House or Senate are likely going to change that basic formula, but some tweaks may be in order.

Senate President Pro Tem John Campbell said the issue will be a major priority of his for the upcoming session, noting that he thought the 16-year-old legislation (starting with Act 60 and 68) had reached a “tipping point” in which the formula might need to be revised.

At issue is the high rate of education spending year-after-year, even though student enrollments have been declining for the past several years. In an interview with House Speaker Shap Smith, VTDigger quoted Smith as saying: “Our system really is one that is targeted towards equity in a way that no other system is, but I think we need to dig deeper into the question of whether the system’s focus on equity is also getting us equitable results and opportunities for students.”

The good news is the initial conversation has been set up in a non-confrontational environment seeking a nonpartisan solution. The bad news is that it remains a tough nut to crack without obvious solutions as to how to spread the burden among more Vermonters.

While that conversation will dominate hours of discussion within the appropriate legislative committees, Smith also recently let it be known that Vermont will be facing annual budget shortfalls of about $50 million to $70 million “as far as the eye can see.” That’s partly because the federal government is sending less and less money to Vermont, and the state doesn’t have the resources to backfill all the needs that that federal government is choosing to neglect. It’s also because the cost of existing state programs is growing faster than the growth of state revenues.

The solution, Smith said in an early volley before the Legislature returns full-time to Montpelier in January, is to cut spending, not look to increase taxes. That’s a bold statement, echoed by the governor, and a clear signal to the Legislature that the state can’t spend its way out of today’s fiscal reality.

That’s not a tune Progressives or many Democrats want to hear. Nor is it music to the ears of the tens of thousands of recipients who depend on state programs to make ends meet while they try to improve their lives. Rather, the stage is being set for an upcoming session based on frugality and the recognition that spending has to be reined in to meet the state’s revenues. Nor does that mean cutting all programs equally; rather, it could mean picking and choosing among those programs deemed most successful and trimming others that have less of a payback. That’s not being a Scrooge, just being realistic about the tough choices that lie ahead.